NEW YORK: US securities regulators on Wednesday (May 25) unveiled a proposed rule to tighten disclosure requirements on the growing number of investments that tout their commitment to environmental, social and governance goals (IS G).
Seeking to address the issue of “greenwashing,” where financial investments may fall short of marketing claims, the Securities and Exchange Commission said the move was intended to standardize disclosure and avoid cases where a fund “could overstate its real consideration of ESG factors”.
SEC Chairman Gary Gensler said the rule was necessary as the scale of America’s so-called “sustainable investment universe.” it has grown to $17.1 trillion, according to one estimate.
“However, when an investor reads current disclosures, it can be very difficult to understand what some funds mean when they say they are an ESG fund,” Gensler said. “There is also a risk that funds and investment advisers mislead investors by overstating their ESG approach.”
Funds that integrate ESG factors alongside non-ESG factors would have to say how they incorporate ESG into the investment process, while ESG impact funds would have to say how they measure progress, the SEC said of the proposed rule.
Funds that emphasize the environment would have to disclose the carbon footprint of their investments.
Opposing the proposal was SEC Commissioner Hester Peirce, a Republican commissioner who said she supported the idea of toughening standards, but that the new rules did not adequately define ESG.
The proposal “avoids explicitly defining E, S and G, but implicitly uses disclosure requirements to induce substantive changes in funds’ and advisers’ ESG practices,” it said. “Investors will pick up on our latest ESG exploits without seeing much benefit.”
The SEC plans a 60-day public comment period on the proposal.